smoothcriminal
28th January 2006, 18:48
Hi All,
Im in the process of buying my first house and plan on renting it out.
The rent will just about cover the mortgage so do i still have to pay Tax on this? How esactly does this work?
fastfences
28th January 2006, 19:44
If you are just about to purchase, you should get prompt professional advice on 'gearing' your loan to the property for the best taxation rate. There are quite a few variables (dependant upon your financial status) that could, in effect, save or cost you thousands over a year.
Cheers, Nigel
Strategist
28th January 2006, 20:01
You will have to complete a self assessment form for the tax year. Only the interest part of your mortgage will be tax deductible so if your rent cancels out against the mortgage payments and your mortgage is an interest only one, then in theory, you will not pay tax. However, if your mortgage is a repayment one, the payments will be a split between interest and capital. Usually, in the early days of the mortgage, the interest makes up a significant amount of each payment, reducing over the period of the mortgage. Again, though, if your rent cancels out the mortgage payment, the capital part of the payment will not be tax deductible so you will have tax to pay on that part. However, there may be allowances you can claim for capital expenditure, refurbishments etc. You may need the services of an accountant to sort out your tax return to ensure that you maximise your allowances. Naturally, the tax (if any) you pay on this investment will form a part of your other taxable income so it will all be considered together.
I hope this helps,
Good luck.